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Vol. 7, Iss. 1
January 31, 2018

Holy Smokestack: Another Court Considers Inapplicability Of CGL Pollution Exclusion Based On “Efficient Proximate Cause”

Last year the pollution exclusion in Washington was shaken to its core. As I’ve discussed, as well as others, in April, the Washington Supreme Court held in Xia v. ProBuilders Specialty Insurance Company that, despite carbon monoxide being a pollutant, the pollution exclusion did not apply to injuries caused by exposure to it. The court reached this conclusion based on the so-called “efficient proximate cause” rule. The court determined that the efficient proximate cause of the injuries was the negligent installation of a hot water heater. Because that was a covered occurrence, that set in motion a causal chain, that led to discharging toxic levels of carbon monoxide, being an excluded peril, the pollution exclusion was not applicable. The decision caused a lot of dropped jaws. In August, despite some strong amicus support from insurer groups, the Washington high court denied the insurer’s motion for reconsideration.

No other court – not even Washington – had interpreted the pollution exclusion based on the determination of “efficient proximate cause.” It is a concept well known to the interpretation of first-party policies -- but not third-party.

But now another court -- outside of Washington -- has considered whether “efficient proximate cause” is a basis to preclude applicability of the pollution exclusion. In Above It All Roofing & Construction v. Security National Ins. Co., No. 16-770 (N.D. Ok. Jan. 5, 2018), an Oklahoma federal court held that the pollution exclusion applied to a claim for damages caused by exposure to asbestos. However, in doing so, the court applied the “efficient proximate cause” rule. It was only the specific policy language at issue that prevented “efficient proximate cause” from otherwise serving as a basis to preclude the applicability of the pollution exclusion.

The pollution exclusion at issue in Above it All arose out of the following scenario. Townmaker, LLC owned a building in Pawhuska, Oklahoma. Townmaker contracted with Above It All Roofing to remove and replace the building’s roof system. At the time of the work, the first floor of the building was leased to Julie O’Keefe, who operated a business named The Cedar Chest. In general, O’Keefe alleged that, during the removal of the roof, silt, dirt, dust, and debris fell into the Cedar Chests store. Testing determined that the dust covering the store contained asbestos from the old roofing materials being torn out. Most of the items in the store were too contaminated to be salvaged.

O’Keefe filed suit against Above it All and Townmaker, alleging that she and The Cedar Chest suffered financial harm. The Cedar Chest was allegedly forced to close its business and O’Keefe allegedly suffered personal injury and emotional distress by breathing in and being repeatedly exposed to asbestos dust.

Above it All sought coverage for the O’Keefe suit from Security National. The insurer disclaimed coverage on several grounds, including the pollution exclusion, which precluded coverage for “‘bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”

Security National argued that the pollution exclusion applied because all of the damages sought were wholly predicated upon the release or discharge of asbestos, being a “pollutant.” Above It All, on the other hand, argued that the damages were from Above It All’s negligent workmanship and not just the release of asbestos. In other words, Above It All argued that the damages were caused by two identifiable causes -- one potentially excluded (asbestos) and one not (negligent workmanship). Therefore coverage was owed.

The court made the following statement at the outset of its analysis: “Because the damages are alleged to have been the result of two causes, the court must consider the efficient proximate cause doctrine under Oklahoma law.” Of note, in making this statement, the court did so in a casual, matter of fact, as if everyone knows that, manner. However, for purposes of liability policies, it is not the case that, when damages are alleged to have been the result of two causes, the court must consider the efficient proximate cause doctrine. While that is often a principle in first party property policies, it has no place in the liability coverage context. And, sure enough, the cases that the Above It All court so casually cited, for the application of the efficient proximate cause doctrine, were either first party cases or based on first party property cases.

While the court concluded that the pollution exclusion still precluded coverage for O’Keefe’s suit, it did so not because the doctrine of efficient proximate cause did not apply. Rather, its decision was based on the fact that the policy “contracted around” the efficient proximate cause doctrine. In other words, the policy used language that expressly precluded coverage -- even if a loss arose from a combination of covered and excluded causes.

The court explained that “[t]he Security National policy’s pollution exclusion precludes coverage for ‘[b]odily injury’ or ‘property damage’ which would not have occurred in whole or part but for the . . . . escape of ‘pollutants' at any time.’”

As the court saw it, by using this language, the policy contracted around the efficient proximate cause doctrine: “The court concludes that the only fair and reasonable construction of the phrase ‘would not have occurred in whole or part’ is to preclude coverage in situations where the asserted damages were concurrently caused by ‘pollutants’ and ‘non-pollutants.’ The pollution exclusion’s requirement of ‘but for’ causation, rather than proximate cause, further indicates an intent to avoid application of the efficient proximate cause doctrine.”

Because the pollution exclusion was still in play, the court considered whether asbestos qualified as a “pollutant” and held that it did.

While the Above it All court held that the pollution exclusion precluded coverage, the real story of the decision is that, like Xia --although not cited – the court examined the pollution exclusion through the lens of the efficient proximate cause doctrine. It was only the policy language at issue – and not the fact that the efficient proximate cause doctrine has no place in liability policies -- that precluded its applicability.

 

 
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